The Supreme Court held that demolition of a shopping mall and hotel complex constructed on land allotted through an irregular process would not serve the public interest when the illegality could be addressed through a substantial financial recovery mechanism. The Court observed that demolishing a fully operational commercial complex after many years of functioning would lead to severe social and economic consequences that would outweigh the benefits of such an action.
The case arose from the allotment of a plot in Sector 30A, Vashi, Navi Mumbai, by the City and Industrial Development Corporation (CIDCO) to K. Raheja Corp in 2003. The land had originally been earmarked for Information Technology use and was allotted at a specified rate per square metre. Subsequent inquiries found irregularities in the allotment process and concluded that the land should have been allotted through a competitive procedure, resulting in financial loss to CIDCO.
In 2014, the Bombay High Court held the allotment to be illegal and arbitrary and directed that the plot be restored to its original condition and handed back to CIDCO. At the same time, the High Court left open the possibility of regularisation of the allotment.
Before the Supreme Court, the developer submitted that it had invested approximately ₹450 crore in constructing a shopping mall and hotel complex spread across about 10.5 lakh square feet. The complex had been operational since 2009, housed around 150 retailers and supported the livelihoods of nearly 8,000 individuals. The development was also generating substantial annual tax revenue.
While examining the matter, the Supreme Court observed that courts must consider not only the illegality involved but also the realities that have developed over time. The Bench emphasized that the doctrine of proportionality should guide the selection of remedies and that a remedy causing greater public harm than public benefit should generally be avoided.
The Court noted that demolition of a fully functioning commercial complex after seventeen years would have catastrophic and irreversible social and economic consequences. It observed that the financial loss suffered by CIDCO due to the irregular allotment could be effectively addressed through a rigorous financial recovery mechanism. In contrast, demolition would adversely affect retailers, employees, consumers and numerous third parties whose interests had become established during years of operation.
The Bench accepted the view that the illegality should be remedied through a heavily penalised process of regularisation rather than demolition. It observed that public law remedies should focus on restoring public welfare and not merely on imposing punishment when such punishment would ultimately harm the public.
The Supreme Court rejected a proposal for regularisation based on an earlier valuation methodology and instead held that the appropriate basis for regularisation was the fair market value of the land as it existed at the time of the High Court’s judgment in 2014. The Court observed that once an allotment has been declared illegal by a court, any regularisation effectively amounts to a fresh grant of legal legitimacy, requiring the beneficiary to pay the full value associated with that benefit.
Applying the 2014 ready reckoner rate of ₹54,400 per square metre and adding interest at the rate of 8 percent from December 2014 until April 2026, the Court calculated the total amount payable at ₹318.31 crore. It directed that the amount already paid towards the original allotment be adjusted against the total liability. The Court also ordered payment of an additional ₹1 crore towards an unfulfilled obligation relating to the development of a garden on an adjoining plot.
The Court directed that upon payment of the specified amount within four months, the allotment would stand regularised. Consequently, it modified the Bombay High Court’s judgment and set aside the direction requiring restoration of the plot and delivery of vacant possession to CIDCO.
The judgment emphasized that while irregularities in public land allotments cannot be overlooked, the remedy adopted must be proportionate to the circumstances of the case. The Supreme Court concluded that in a situation involving substantial investment, established commercial activity, thousands of livelihoods and significant public revenue, penal regularisation coupled with financial restitution served the public interest more effectively than demolition.
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